Ah- ok, I didn't realise you were doing that.
I can reproduce the problem if I set "deny" permissions on the folder I point the activity cache to, so my guess is you're seeing something permissions related. Either you don't have Full Control to the folder, or it's in a location that requires elevation to bypass UAC (such as in the root of C:\ or in Program Files). If you run SQL Backup by right-clicking and picking "Run as Adminitstrator", does it work OK?
I can reproduce the problem if I set "deny" permissions on the folder I point the activity cache to, so my guess is you're seeing something permissions related. Either you don't have Full Control to the folder, or it's in a location that requires elevation to bypass UAC (such as in the root of C:\ or in Program Files). If you run SQL Backup by right-clicking and picking "Run as Adminitstrator", does it work OK?